Organisational redesign that creates value, or just another restructure?
If you’ve worked in large organisations you have probably lost count of the number of restructures you have been through. In 2016 The Boston Consulting Group reported 80% of surveyed companies said they had undergone a recent reorganisation, at least 50% involving the whole organisation, and more than half reported these had been unsuccessful (Tollman et al, Smart Design for Performance, TBCG, April 2016).
In most of the places I have worked, “organisational redesign” equated to a restructure and these happened about every two years. They caused a lot of disruption and angst, they were often aimed at getting rid of people, usually to save costs, and they became synonymous with the word “change”. They absorbed an enormous amount of time and emotional energy, usually to the detriment of organisational performance, and gave “organisation design” and change a bad name.
Part of this lack of success is due to the fact that organisation restructures do not address the underlying change issues required for performance improvement in modern organisations. Tollman et al point out that in most modern organisations:
“To change a company’s performance is to change what happens in the company. And what happens in a company is not directly a matter of organisational levers (such as structures, processes and systems) but one of behaviour – that is, what people do: how they act, interact and make decisions. Workforce behaviour is what determines company performance.”
Organisational design creates an environment that brings strategy to life
Human performance is highly influenced by context, and organisational design creates the context within which the strategic value of an organisation is produced and delivered. It involves the interplay between the people, processes, systems and culture. Nothing happens without people however, and people are the most complex and often undervalued variable in delivering results. People are social beings who naturally form hierarchical groups and look to leaders to take a key role in setting expectations and modelling behaviour.
An organisation’s design should create an environment which encourages the individual and group behaviours which will support delivery of the business strategy. Organisational performance is a complex interplay between individuals and teams and the power structures, processes, systems and context within which they operate. The formal structure is only a small part of this, so to think restructures alone will improve performance ignores the complexity of what drives performance, behaviour, and change.
To create the targeted business outcomes from organisational design, I suggest working through the following questions:
Step 1: What is the current strategy and is the organisation design supporting this?
Step 2: What are the gaps and what needs to change?
Step 3: What is an organisation design that will make it easier to deliver the strategy?
Step 4: How will we implement this and what action and behaviours are required from whom?
Step 1: Where are we now and is our organisation design supporting delivery of our strategy?
This step involves looking at the current strategy, the operating model, the structure, culture and performance. Is the organisation delivering the value intended at a cost that is competitive? What are the behaviours the current organisational design is producing and rewarding, what is the customer experience this is producing, and is this effectively delivering the targeted business results? What are the pain points or the unintended consequences that the current design may be producing and why?
The availability and use of particular performance data will also give an indication of what is considered important in the organisation and what is ignored, and how these align to the strategy.
Some of the best insights on how an organisational system is really working come from customers and from staff who are dealing with how the system works every day. Obtaining customer and staff feedback from the very beginning provides an opportunity to see performance and value through different eyes, build trust with key stakeholders, and generate a sense of openness, fair process, and good will that is invaluable for any future change.
Step 2: What are the gaps and why and how does the organisation design need to change?
This step involves an assessment of the strengths and weaknesses identified and key opportunities for improvement. This could involve changes to systems, processes, roles and responsibilities, individual or group functions, capabilities or structure. Or it could just involve sorting out misunderstandings, poor communication, unclear roles and responsibilities, or poor leadership.
Often just getting key people together to talk through issues will sort out problems, as what appear to be problems with organisation design can often be misunderstandings and implementation problems.
It is important to identify the real problems to avoid wasting time, energy and resources on unnecessary restructures that undermine value.
Step 3: What is an organisation design that will make it easier to deliver the strategy?
If there is a need to design or redesign an organisation, the focus should be on how to create an organisational context that will support people, including leaders, in delivering the targeted strategic value at a competitive price.
If you don’t know where to start, start on the outside with the customer experience you want to create and work inwards to design how your business model, processes and systems should work to create the most value. Then consider options for grouping and allocating responsibilities from the top down that fit your business model, the value you are creating, and the human realities of what will bring the best out in the kind of workforce you need.
It is important that any solutions take into account the reality of different types of work cultures and how to create the environment that is most supportive of the targeted behaviour based on facts and evidence rather than on ideology and management fads. A field-based blue collar work team will have a very different workstyle to office based IT programmers so they probably need different organisation designs to work at their best.
Many management practices and organisational processes are not based on the realities and the research about human social behaviour and performance and can actually undermine performance. Organisation design should be based on the rich evidence that is available from many decades of research, on what shapes human behaviour in social groups and produces the behaviour that is needed to deliver the business strategy.
Often with organisation design, less is more. People perform best when they are engaged, understand the objectives, and can use their initiative to solve problems and deliver results. They do not need everything spelt out in detail, and even if it is, they usually do their own improvisations. Engaged people who understand the value they should be delivering make things work and add enormous extra value to any organisation design.
Step 4: How will we implement this and what action and behaviours are required from whom?
Implementation is usually neglected in organisational design and it is often assumed the design is the solution when it is more often the human engagement in implementation and day to day operational issues that make organisational design succeed or fail. For effective implementation, the engagement of impacted leaders and staff from the beginning is very important as they are the key to making an organisation work.
Leadership behaviour, engagement of people, stories, rewards, and culture all contribute to creating the organisational context that shapes how the organisation really works. The real organisational design is seen in the way things are done every day, and in the role leaders play in setting the context and standards, in coaching, in rewarding behaviour, and in building bridges between groups to encourage the collaboration needed so the whole system works together to deliver the value intended.
However, in research done by Sull, Homkes and Sull (Why Strategy Execution Unravels and What to Do About It, HBR, March 2015), they found over half of top level leaders do not understand the connection between their company’s strategic priorities and only fifty-five percent of middle leaders can name even one of their company’s top five priorities. This means people are confused and unclear about what is expected and what they should be doing and this impacts on the execution of organisation design.
The responsibilities of various levels of management and of different organisational groups are not sorted out and so key elements of the organisation design are not implemented effectively. The natural inclination of people to stick to their teams means that the collaboration required between groups for organisations to function well, fails. Often in an attempt to remedy the situation, ever more complicated organisational structures or work-arounds are created, rather than just sorting out responsibilities and working relationships through conversations and breaking down barriers so groups work together better.
The success or failure of organisational design usually just comes down to people.
Susan Kehoe
Consultant | Coach | Change Leader
Work with Susan
Susan specialises in people-focused strategy development through to implementation and performance improvement, people, leadership and culture change, and transformation and innovation. She brings practical experience and thought leadership gained from many years of leading successful performance improvement and change in some of Australia’s leading businesses and government. Her approach engages people and unlocks potential to improve service delivery and performance.